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Research: TMT
EMIS has reported that H121 trading was slightly ahead of board expectations. The mix of business is returning to pre-COVID-19 levels and the company continues to focus on investing in its technology roadmap. While H121 performance was positive, we maintain our forecasts for FY21–23 pending H121 results, which are scheduled for 9 September.
EMIS Group |
Returning to business as usual |
H121 trading update |
Software & comp services |
13 July 2021 |
Share price performance
Business description
Next events
Analyst
EMIS Group is a research client of Edison Investment Research Limited |
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EMIS has reported that H121 trading was slightly ahead of board expectations. The mix of business is returning to pre-COVID-19 levels and the company continues to focus on investing in its technology roadmap. While H121 performance was positive, we maintain our forecasts for FY21–23 pending H121 results, which are scheduled for 9 September.
Year end |
Revenue (£m) |
PBT* |
Diluted EPS* |
EMIS adj. dil EPS** (p) |
DPS |
P/E |
12/19 |
159.5 |
41.0 |
53.5 |
51.1 |
31.2 |
22.4 |
12/20 |
159.5 |
43.4 |
56.4 |
50.4 |
32.0 |
21.2 |
12/21e |
164.1 |
43.8 |
56.2 |
53.2 |
34.0 |
21.3 |
12/22e |
172.7 |
46.5 |
59.7 |
57.4 |
35.0 |
20.0 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **EMIS adjusted EPS – cash accounts for development costs and excludes exceptional items and amortisation of acquired intangibles.
Return to business as usual in H121
Management noted it saw a return to business as usual in H121, despite the ongoing pandemic, and trading was slightly ahead of board expectations. Revenue and adjusted operating profit for H121 were ahead of both H120 and H119. EMIS Health saw lower margin hardware and connectivity-related sales revert to more normal levels compared to the high levels in H120 and continued to invest in its technology roadmap through H121. EMIS Enterprise saw double-digit growth year-on-year in both recurring and non-recurring revenues. This division is home to Pinnacle software, which is being used for the NHS vaccine rollout in England.
Confident outlook
EMIS closed H121 with net cash of £48.0m, down from £53.0m at the end of FY20 after settling the £7.3m deferred VAT payable, but up from £44.1m at the end of H120. Management confirmed its confidence in the outlook for the company. We maintain our forecasts, pending H121 results on 9 September.
Valuation: At a discount to peers
Compared to a global group of healthcare software peers, EMIS trades at a discount on all valuation metrics. EMIS generates significantly higher operating profit margins but with slightly slower revenue growth, generates lower earnings growth. Its dividend yield is significantly ahead of the group. Key to closing the discount will be evidence that revenue growth is returning to the company’s medium-term goal of mid- to high single digits, in turn driving stronger earnings growth. We note that EMIS has good visibility (recurring revenue was 82% in FY20) and a strong balance sheet with no debt.
Exhibit 1: Financial summary
£'000s |
2016 |
2017 |
2018 |
2019 |
2020e |
2021e |
2022e |
2023e |
||
Year end 31 December |
||||||||||
PROFIT & LOSS |
||||||||||
Revenue |
|
|
158,712 |
160,354 |
149,710 |
159,507 |
159,453 |
164,139 |
172,741 |
182,448 |
Cost of Sales |
(14,151) |
(14,674) |
(14,236) |
(15,407) |
(20,335) |
(15,387) |
(16,751) |
(18,549) |
||
Gross Profit |
144,561 |
145,680 |
135,474 |
144,100 |
139,118 |
148,752 |
155,990 |
163,899 |
||
EBITDA |
|
|
52,288 |
49,222 |
48,919 |
55,632 |
53,536 |
55,740 |
59,069 |
61,938 |
Operating Profit (before amort. of acq. intang, SBP and except.) |
38,897 |
34,895 |
32,991 |
40,794 |
43,020 |
43,440 |
46,169 |
49,038 |
||
EMIS adjusted operating profit |
|
|
38,753 |
37,406 |
35,890 |
39,273 |
39,266 |
41,100 |
44,429 |
47,298 |
Amortisation of acquired intangibles |
(6,639) |
(6,717) |
(6,202) |
(7,317) |
(6,824) |
(5,557) |
(3,812) |
(3,268) |
||
Exceptionals |
(6,714) |
(16,988) |
1,657 |
(5,360) |
1,802 |
0 |
0 |
0 |
||
Share-based payments |
(473) |
(550) |
(766) |
(1,290) |
(1,440) |
(1,440) |
(1,440) |
(1,440) |
||
Operating Profit |
25,071 |
10,640 |
27,680 |
26,827 |
36,558 |
36,443 |
40,918 |
44,330 |
||
Net Interest |
(237) |
(299) |
(180) |
(498) |
(501) |
(500) |
(500) |
(500) |
||
Profit Before Tax (norm) |
|
|
39,159 |
35,192 |
33,426 |
41,038 |
43,377 |
43,798 |
46,527 |
49,396 |
Profit Before Tax (FRS 3) |
|
|
25,333 |
10,937 |
28,115 |
27,071 |
36,915 |
36,801 |
41,276 |
44,688 |
Tax |
(5,208) |
(2,074) |
(5,355) |
(5,022) |
(6,794) |
(6,992) |
(7,842) |
(10,502) |
||
Profit After Tax (norm) |
32,175 |
27,989 |
26,447 |
33,697 |
35,658 |
35,476 |
37,687 |
40,011 |
||
Profit After Tax (FRS3) |
20,125 |
8,863 |
22,760 |
22,049 |
30,121 |
29,809 |
33,433 |
34,186 |
||
Average Number of Shares Outstanding (m) |
62.8 |
62.9 |
63.0 |
62.9 |
62.9 |
63.0 |
63.0 |
63.0 |
||
EPS - normalised & diluted (p) |
|
|
49.4 |
43.1 |
40.4 |
53.5 |
56.4 |
56.2 |
59.7 |
63.3 |
EPS - EMIS adjusted & diluted (p) |
|
|
49.2 |
47.0 |
45.0 |
51.1 |
50.4 |
53.2 |
57.4 |
57.7 |
EPS - FRS 3 (p) |
|
|
30.4 |
12.8 |
36.1 |
36.0 |
48.1 |
47.3 |
53.1 |
54.3 |
Dividend (p) |
23.4 |
25.8 |
28.4 |
31.2 |
32.0 |
34.0 |
35.0 |
36.0 |
||
Gross Margin (%) |
91.1% |
90.8% |
90.5% |
90.3% |
87.2% |
90.6% |
90.3% |
89.8% |
||
EBITDA Margin (%) |
32.9% |
30.7% |
32.7% |
34.9% |
33.6% |
34.0% |
34.2% |
33.9% |
||
Operating Margin (before GW and except.) (%) |
24.5% |
21.8% |
22.0% |
25.6% |
27.0% |
26.5% |
26.7% |
26.9% |
||
BALANCE SHEET |
||||||||||
Fixed Assets |
|
|
133,292 |
122,979 |
117,920 |
101,089 |
105,518 |
101,319 |
98,765 |
96,756 |
Intangible Assets |
110,953 |
100,844 |
96,807 |
82,345 |
85,295 |
80,238 |
76,326 |
72,959 |
||
Tangible Assets |
22,187 |
22,037 |
21,000 |
18,399 |
19,870 |
19,870 |
20,370 |
20,870 |
||
Other fixed assets |
152 |
98 |
113 |
345 |
353 |
1,211 |
2,069 |
2,927 |
||
Current Assets |
|
|
46,088 |
56,900 |
53,107 |
67,278 |
87,170 |
91,659 |
108,099 |
126,598 |
Stocks |
1,815 |
1,633 |
1,264 |
657 |
613 |
613 |
613 |
613 |
||
Debtors |
39,970 |
40,148 |
36,223 |
33,047 |
29,993 |
33,727 |
35,495 |
37,489 |
||
Cash |
4,303 |
13,991 |
15,620 |
31,099 |
53,008 |
53,763 |
68,435 |
84,939 |
||
Current Liabilities |
|
|
(56,158) |
(65,131) |
(60,169) |
(55,700) |
(63,370) |
(55,645) |
(58,509) |
(61,741) |
Creditors |
(51,425) |
(65,131) |
(60,169) |
(55,060) |
(62,380) |
(54,655) |
(57,519) |
(60,751) |
||
Lease liabilities |
0 |
0 |
0 |
(640) |
(990) |
(990) |
(990) |
(990) |
||
Short term borrowings |
(4,733) |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(9,080) |
(6,734) |
(8,199) |
(8,469) |
(10,180) |
(8,340) |
(6,831) |
(7,436) |
Long term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Lease liabilities |
0 |
0 |
0 |
(3,294) |
(5,891) |
(5,380) |
(4,869) |
(4,358) |
||
Other long term liabilities |
(9,080) |
(6,734) |
(8,199) |
(5,175) |
(4,289) |
(2,960) |
(1,962) |
(3,078) |
||
Net Assets |
|
|
114,142 |
108,014 |
102,659 |
104,198 |
119,138 |
128,994 |
141,525 |
154,176 |
CASH FLOW |
||||||||||
Operating Cash Flow |
|
|
43,657 |
48,834 |
49,873 |
50,059 |
64,138 |
46,280 |
60,166 |
63,176 |
Net Interest |
(324) |
(356) |
(214) |
(93) |
(54) |
(500) |
(500) |
(500) |
||
Tax |
(7,655) |
(8,139) |
(5,830) |
(4,466) |
(11,684) |
(8,322) |
(8,840) |
(9,385) |
||
Capex |
(12,084) |
(11,342) |
(12,767) |
(13,119) |
(9,491) |
(11,800) |
(12,300) |
(12,300) |
||
Acquisitions/disposals |
(1,790) |
329 |
(9,269) |
5,152 |
(953) |
(2,000) |
0 |
0 |
||
Financing |
881 |
571 |
906 |
(2,369) |
1,324 |
(500) |
(500) |
(500) |
||
Dividends |
(14,006) |
(15,476) |
(21,070) |
(18,745) |
(19,860) |
(20,893) |
(21,842) |
(22,475) |
||
Net Cash Flow |
8,679 |
14,421 |
1,629 |
16,419 |
23,420 |
2,266 |
16,184 |
18,015 |
||
Opening net debt/(cash) |
|
|
9,109 |
430 |
(13,991) |
(15,620) |
(31,099) |
(53,008) |
(53,763) |
(68,435) |
Finance leases initiated |
0 |
0 |
0 |
(940) |
(1,511) |
(1,511) |
(1,511) |
(1,511) |
||
Other |
0 |
0 |
0 |
0 |
0 |
(0) |
0 |
0 |
||
Closing net debt/(cash) |
|
|
430 |
(13,991) |
(15,620) |
(31,099) |
(53,008) |
(53,763) |
(68,435) |
(84,939) |
Source: EMIS, Edison Investment Research
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Research: TMT
Following a disappointing FY20, mVISE is planning to reinvigorate its growth via acquisition. A small (€1.9m) capital increase has already been undertaken but a further (much larger) raising is expected and consequently the company has delayed its AGM. The financial performance of the core professional services businesses appears to have stabilised in 2021 so far and there are some signs of progress in products also. Consensus forecasts imply a 10% organic revenue growth and EBITDA margin in FY22 and an FY22e EV/EBITDA multiple of 13.0x.